Germany’s Inflation Weakened in May as Energy Prices Retreated

Inflation in Germany, Europe’s largest economy, slowed in May as energy prices retreated.

Inflation, calculated using a harmonized European Union method, eased to 2.1 percent from 2.2 percent in April, the Federal Statistics Office in Wiesbaden said in an e-mailed statement today. Economists forecast the rate to hold steady, the median of 19 estimates in a Bloomberg News survey shows. In the month, consumer prices fell 0.3 percent.

Inflation pressures are abating as oil prices decrease and as speculation about a Greek exit from the euro region curbs confidence among companies and households, clouding the economic outlook. At the same time, German unemployment at a two-decade low and rising wages are bolstering consumer demand.

“In the short term, inflation in Germany is driven mainly by energy prices and as oil prices have fallen markedly in May, consumers have to pay less,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “But the general price level in Germany could rise again from autumn as low unemployment and wage growth boost disposable incomes and prices.”

Crude oil prices have declined about 13 percent over the past month and 11 percent from a year earlier. The statistics office said fuel costs had the first monthly decline this year in May, while heating oil was cheaper for a third month.

While Germany’s economy expanded a better-than-forecast 0.5 percent in the first quarter, helping to keep the euro area as a whole out of recession, reports last week showed German business confidence fell in May and manufacturing output contracted.

Concern about Greece’s future in the euro region mounted after elections this month failed to produce a government and saw support grow for parties opposed to austerity measures. A second ballot will be held on June 17.

The European Central Bank, which will present new inflation forecasts in June, currently expects the euro-area inflation rate to drop below its 2 percent limit in early 2013.